Friday, March 16, 2012

Politics 101

For those of you who have not read the Commission on the Reform of Ontario's Public Services...

Here is a recap:  The government of Ontario owns four GBE's (Global Business Enterprises), each of which returns significant revenues to the province.  Government Business Enterprises are government organizations that:

*  Are separate legal entities with the power to contract in their own name;
*  Have the financial and operating authority to carry on a business;
*  Are principally focused on selling of the goods and services to individuals and non-government organizations; and
*  Are able to maintain their operations and meet their obligations through revenues generated outside the government reporting entity.

The four GBE's are OLG (Ontario Lottery and Gaming Corp), LCBO (Liquor Control Board), OPG (Ontario Power Generation), and Hydro One.  These four play a critical role in the province's fiscal condition.  In 2010-2011, the four combined to produce net income of $4.6 billion and since 2006, these four organizations have provided an average combined net income of $4.3 billion. 

The combined net assets of the four GBEs amounted to $17.6 billion at the end of the last fiscal year, about 13% of the government's total assets.  With $8.6 billion in net assets, OPG makes up the largest share of assets, followed by Hydro One ($6.2 billion), OLG ($2.4 billion) and LCBO ($0.4 billion).

The OLG's Part in the Fiscal Plan & Recommendations

Focusing more specifically on the OLG; they are required under legislation to remit to the province a "win contribution" of 20% of gaming revenue from the privately operated Resort Casinos and Great Blue Heron Slot Machine Facility.

The OLG provides significant net income to the province, but operational efficiencies could be explored to improve the company’s margins while continuing to respect social responsibility and meet its conduct and management requirement for the operation of all lottery schemes. For example, a number of questionable business practices should, at a minimum, be reviewed from a value-for-money perspective.

*  OLG maintains two offices, one each in Toronto and Sault Ste., Marie;

*  OLG continues to operate Casino Niagara despite the opening of the permanent and considerably larger Niagara Fallsview Casino Resort in 2004;

*  The Slots at Racetrack Initiative, which allows slot machines to be co-located at racetrack facilities only, earmarks a share of revenues generated from slots for racetrack owners and horse breeders.  This amounted to $334 million in 2009-2010.  Municipalities that play host to a racetrack also receive a share -- 5% of proceeds from the first 450 slot machines at the facility and 2% for each machine over that.  This totalled $78 million in 2009-2010, and

*  OLG purchases and provides lottery terminals to point-of-sale locations.

Finally, OLG should continue to seek new and innovative ways to deliver gaming in Ontario to increase its revenues. These include expanding existing business lines, creating new business lines (as it is doing for Internet gambling), and leveraging further private-sector involvement. In all such ventures, the OLG must remain mindful of its mandate to promote responsible gaming.

Recommendation 17-3:  Improve the Ontario Lottery and Gaming Corporation's efficiency through, at a minimum, the following measures:

*  Choose one of the two head offices;

*  Close one of the two casinos in Niagara Falls;

*  Allow slot machine operations at sites that are not co-located with horse racing venues; and

*  Stop subsidizing the purchase and provision of lottery terminals to point-of-sale locations and begin to introduce other points of sale for lotteries

Recommendation 17-4:  Re-evaluate, on a value-for-money basis, the practice of providing a portion of net slot revenues to the horse racing and breeding industry and municipalities in order to substantially reduce and better target that support.

 Recommendation 17-5:  Consider directing the Ontario Lottery and Gaming Corporation to expand its existing business lines, develop new gaming opportunities and make effective use of private-sector involvement.

Ok, let's break this down;  There are so many cost-cutting areas that the OLG could focus on WITHOUT ending the partnership with the horse racing industry, that it'll make your head spin!  Hopefully future newspaper headlines will say "OLG Closing Their Sault Ste. Marie Head Office", or "Casino Niagara Ceases" (It's important to note that there is also Seneca Niagara Casino and Hotel directly across the border in Niagara Falls, NY).  They could also start introducing other point-of-sale locations that would better accommodate patrons geographically and/or demographically. 

Personally, I think it very unfair to end the contract outright with the horse racing industry but still collect on the revenue generated by patrons who still are betting on the horses.  Maybe I'm blind but in "Recommendation 17-4", I read the words "Re-evaluate", not "End the partnership outright with the horse racing industry".  We can ask ourselves, "Was the industry making boatloads of cash before the Slots at Racetrack partnership agreement began in 1998?"  The answer is "No", however, the positive ripple effects because of it extend much further than the racetrack only.

Within two weeks the OHRIA had a billboard up-and-running for their "value4money" website, which, don't get me wrong, is fantastic, but why couldn't we have had billboards up two years ago actually promoting growth within our industry?  Why did it take the ending of a lucrative partnership with the OLG to start promoting ourselves?

Did we really do our fair share as an industry to keep growing?  Imagine a billboard two years ago that read:

As an industry we must hold some accountability, and as well, we should ensure that our industry continues to grow and prosper with or without the aid of others.

"If you have no will to change it, you have no right to criticize it."

"Stay safe, keep your hooves on the ground, and keep reaching for the wire!"

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